In these circumstances, the drawer cannot escape from the criminal liability merely by filing an insolvency petition by putting forward the case that he is not bound to discharge the liability mentioned in the complaint filed before the criminal Court, as there is no existing liability or he cannot face the criminal proceeding as he is already sought to be declared as an insolvent, especially when there is a Section permitting the Court to presume that there is an existing liability and the issuance of cheque by the accused was made towards the discharge of the said liability, which is legally enforceable.
30. In these circumstances, I am of the view that mere presentation of the insolvency petition or pendency of the insolvency petition, while the complaint was filed, would not disentitle the complainant to seek for the speedy remedy by way of penal action before the criminal Court over the offence stated to have been already committed by the accused.
Madras High Court
C.T. Thangaraj vs Murugesan on 15 April, 1999
Equivalent citations: 1999 CriLJ 3436
1. Thangaraj, the accused, the petitioner herein has filed this petition under Section 482 Cr. P.C. seeking to call for the records in C.C. No. 244/98 on the file of Judicial Magistrate, Walajapet, Vellore District and quash the proceedings.
2. Mr. Jothi, the learned counsel for the petitioner, would at length argue by citing several judgments that the proceedings initiated against the petitioner under Section 138 of the Negotiable Instruments Act have to be quashed mainly on the ground that the petitioner filed insolvency petition in I.P. No. 7 of 1998 on the file of Subordinate Judge, Ranipet, Vellore District, in which notice to the creditors including the complainant, the respondent herein, was issued and that therefore, once the petition for insolvency is filed under the Provincial Insolvency Act and once the enforceability of the debt has been covered for the relief in the Insolvency Proceedings with a prayer for adjudication in the Insolvency Proceedings, the complainant, the respondent herein cannot have any independent cause of action outside the scope of Insolvency Act, so as to seek the relief in the criminal Court under Section 138 of the Negotiable Instruments Act and as such, the said proceedings are liable to be quashed.
3. In elaboration of the above ground, Mr. Jothi, the learned counsel appearing for the petitioner by pointing out the relevant provisions of the Negotiable Instruments Act, would make the detailed submissions which could be summarized as follows :--
(a) Section 138 of the Negotiable Instruments Act provides that where cheque was issued by the drawer for the discharge of any debt or other liability and the said cheque, when presented, is returned by the bank unpaid, such drawer shall deem to have committed an offence. However, the proviso (a), (b) and (c) of Section 138 of the Act would make it clear that the said Section would apply only when three conditions were complied with.
i)The cheque shall be presented to the bank within a period of six months;
ii) After dishonor, a statutory demand shall be made within 15 days; and
iii) The drawer failed to make the payment within 15 days from the date of receipt of the said notice of demand.
(b) The explanation appended to the Section would indicate the debt or liability mentioned in Section 138 of the Act shall be a legally enforceable debt or other liability. By adding this Explanation to the Section, it is clear that issuance of cheque for the discharge of a mere debt or liability, which is not a legally enforceable debt or liability, would not attract the penal Section 138 of the Negotiable Instruments Act. In order words, if the ingredients, namely, the legally enforceable debt is absent, then there could be no prosecution under the Act. Therefore, the prosecution ought to establish that the cheque was issued towards the discharge of the debt, which is enforceable and that too, legally enforceable. Unless these parameters are satisfied, the complaint shall not be entertained by the criminal Court.
(c) Though the word 'legally enforceable debt' is not mentioned in the main Section, it would be clear that a debt or liability shall be legally enforceable, when it is read along with the Explanation.
(d) The Apex Court, in Sundaram Pillai v. Pattabiraman , while interpreting the word Explanation as
contained in Section 10(2) of the Tamil Nude Buildings (Lease and Rent Control) Act, would hold that the object of an Explanation to a statutory provision is to explain. the meaning and intendment of the Act itself, to clarify the same so as to make it consistent with the dominant object which it seems to sub serve, to provide additional support to the dominant object of the Act in order to make it meaningful and purposeful and to advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the Act.
(e) Though the Explanation does not widen the scope of the main clause, the real meaning has to be discerned by giving real legislative intent notwithstanding the fact that the Legislature named that provision as an Explanation. The Explanation must be read so as to harmonise with and clear up any ambiguity in the main Section.
(f) In the instant case,the petitioner filed an Insolvency Petition in I.P. No. 7 of 1998 on the file of Subordinate Judge, Ranipet, Vellore District and the name of the complainant figures in the said petition as 7th Creditor.
(g) Though the Explanation appended to Section 138 of the Negotiable Instruments Act makes it obligatory that the debt or other liability means legally enforceable debt or other liability. Once the insolvency proceedings have commenced, the enforcement of debt is subject to the Provincial Insolvency Act, which the petitioner invoked before the competent Court. Once the enforceability of the debt has been covered for the relief in the Insolvency Proceedings with a prayer for adjudication, the complainant cannot have any independent cause of action outside the scope of the Insolvency Act, since it cannot be said that the debt is a enforceable debt and that too, legally enforceable.
(h) In such circumstances, in the absence of main ingredients in the complaint, the proceedings as against the petitioner are bad in law and the same is liable to be quashed.
4. In order to decide the issue referred to above, it is quite essential to have certain details relating to the facts of the case.
5. According to the complainant, the petitioner on 18-5-98 issued a cheque for a sum of Rs. 30,000/- in favour of the complainant towards the discharge of the amount due from the accused to the complainant in commercial transaction. The cheque was presented on 5-8-98 in the bank. The same was dishonoured and the intimation of dishonor was given to the complainant on 6-8-98. On 19-8-98, the complainant issued a statutory notice demanding for the cheque amount. This notice was received by the petitioner on 22-8-98. However, he failed to make the payment as per the demand notice. Therefore on 20-9-98, the complainant filed a complaint before the criminal Court under Section 138 of the Negotiable Instruments Act, which was taken on file in C.C. No. 244/98.
6. According to the petitioner/accused, he started a business of his own in the year 1992 manufacturing Hand Gloves and leather goods at Annampalayagam, Arcot, Vellore District. Though he had initial success in the business, due to continued depression prevailing in the country in economic front and due to extreme tight situation in money flow, he was unable to continue the business and consequently, unable to pay of his debts to creditors numbering about 31 of which the complainant is the 7th creditor. In order to relieve himself from the indebtedness and adjudicate himself as insolvent, he filed an Insolvency Petition after closing his business on 1-4-98. The Insolvency Petition dated 5-9-98 was numbered as I.P. No. 7/98 on the file of the Subordinate Judge, Ranipet and notice was issued to all the creditors.
7. The contention urged in this petition is that once the Insolvency Petition is entertained by the Insolvency Court, and especially when the complainant is impleaded as one of the creditors in the said Insolvency Petition, the criminal Court has no jurisdiction to proceed with the complaint under Section 138 of the Negotiable Instruments Act, since the debt mentioned in the complaint for the discharge of which the cheque was issued ceased to be legally enforceable debt.
8. It is settled law that under the inherent powers conferred to this Court under Section 482 Cr. P.C., the proceedings can be quashed only when the averments contained in the complaint, without adding or subtracting, do not make out the offence alleged.
9. Keeping in mind the principles, if we look at the complaint, it is clear that the complainant made specific averments in paras 2 and 3 of the complaint that on 18-5-98, the petitioner/accused issued a cheque for Rs. 30,000/- towards the amount due from the accused to the complainant in commercial transaction and the same was presented and dishonoured on 5-8-98 and despite the receipt of the demand notice on 22-8-98, the petitioner/accused did not make the payment and so, the complainant filed the complaint.
10. The submission with reference to the interpretation of Explanation as appended to Section 138 of the Negotiable Instruments Act on the basis of the decision in Sundaram Pillai v. Pattabiraman, (supra), is in my view,is correct and acceptable.
11. The reading of the provision, viz, Section 138 of the Act, would clearly reveal that the complainant has to show in the complaint that the cheque was issued towards the legally enforceable debt. In fact, this is mentioned in the complaint. But, the contention of the counsel for the petitioner is that once the accused approached the Insolvency Court by filing a petition, the en-forceability of the debt is lost, which does not appear to be correct.
12. As per Section 138 of the Negotiable Instruments Act, when the cheque was dishonoured and statutory notice demanding the cheque amount was issued, the accused shall pay the cheque amount within 15 days from the date of receipt of the said notice. The moment the said 15 days expired, the cause of action arises. In other words, the offence under Section 138 of the Act is complete.
13. In the instant case, admittedly, there is neither payment of the cheque amount nor reply to the statutory notice received on 22-8-98. Therefore, once the cause of action arose for the offence committed, the complainant has to approach the criminal Court within one month to take penal action under Section 138 of the Act.
14. To put it clearly, the complainant apr preached the criminal Court not for recovery of the legally enforceable debt, but for taking penal action under Section 138 of the Act for the offence already committed by the accused by not making the payment of the cheque amount, despite the receipt of the statutory notice.
15. The only question before the criminal Court is whether the cheque issued by the accused towards the discharge of his liability was dishonoured and despite the service of demand notice, whether he has not paid the amount?
16. Even in the affidavit filed by the petitioner before this Court, he does not deny having issued the cheque on 18-5-98 towards the amount due from the accused to the complainant in commercial transaction. The statutory notice was received by the accused on 22-5-98. The offence was complete on the expiry of the 15 days.
17. As it is indicated earlier, immediately after the 15 days time for payment is expired, the cause of action arises. Once the same arises, the complainant cannot but approach the Court within 30 days from the expiry of the time for payment by filing a private complaint.'
18. There is no bar contained in any of the provisions of both the Acts, namely, Provincial Insolvency Act and the Negotiable Instruments Act from approaching the criminal Court to seek] for penal action under Section 138 of the Negotiable Instruments Act. Further, mere pendency! of the insolvency petition would not disentitle the complainant to approach the criminal Court seeking for punishment to the accused for the offence already committed.
19. The other decisions cited by the counsel in Anil Kumar Parolia v. Md. Shafique Khan 1997 Cri LJ 717 and Ramasingh Amarsingh v. Kandasamy Textiles 1994 MLJ (Cri) 706 would not help in any way in favour of the accused, as the issue in question has not been dealt with.
20. On the other hand, the decision in Emperor v. Mulshankar Harin and Bhat, ILR Vol. XXXV Bom 63 fairly placed by the counsel for the petitioner would be applicable to the present case, wherein it is held that the Magistrate's jurisdiction to try the insolvent for an offence under Section 421 I.P.C. is not taken away by anything contained in the Insolvency Act.
21. The Division Bench of this Court in Veeraraghavan, etc. v. Lalith Kumar (1994) 2 Mad LW (Cri) 663 : 1995 Cri LJ 1882 and Sankaralingam v. Union of India (1996) 1 Mad LW (Cri) 320 : 1996 Cri LJ 3387 would elaborate the scope and object of the Sections of the Act. As laid down by this Court, the Negotiable Instruments were devised by the mercantile community as a safe and very dependable method of discharging pecuniary liabilities. It is true that the Act, prior to the re-introduction of Chapter XVII by Act 66 of 1988, has not failed to provide remedy for the aggrieved party. The remedy would be merely of a civil nature. However, the process to seek civil justice is quite dilatory. To ensure promptitude in remedy against defaulters, the best way is to provide a criminal remedy of penalty, which is the just thing that is said to be done by the amending Act.
22. There are two ways in which the legislature has further helped the cause of the aggrieved party by facilitating the application of Section 138 of the Act to his case:
(i) Under Section 139 a presumption is created whereby it is presumed, unless the contrary is proved, that the holder of the cheque, i.e., the aggrieved party received the cheque for the discharge, in whole or in part, of any debt or liability; and
(ii) Under Section 140 of the Act the drawer cannot adopt the mere defence of good faith, i.e., the defence that he had no reason to believe, when he issued the cheque, that the cheque may be dishonoured on presentation for the reasons stated in that section. However, an honest or an innocent drawer is sought to be adequately protected by this Chapter by giving time for the drawer to make the payment.
23. The drawer of the cheque may deny the offence under Section 138 of the Act in two circumstances :
(a) Where there was no debt or liability as between the drawer and payee;
(b) Where the cheque was not drawn for discharging such debt or liability.
24. Explanation to Section 138 of the Act provides that debt or liability under this Section means only a legally enforceable or other liability. In the instant case, it is not the case of the petitioner when the cheque was issued, there was no existing liability. It is also not the case of the petitioner that the cheque was not drawn for the purpose of discharging the said liability.
25. The only point urged in this case is that the moment the accused approached the Insolvency Court, the debt becomes unenforceable debt. This contention totally lacks substance because it is not denied that on the date of issuance of cheque dated 18-5-98, the cheque was issued to the complainant for the purpose of discharging the existing liability, which is the crux of the complaint.
26. Thus, when there are averments in the complaint that the cheque was issued by the accused for the discharge of the amount due from the accused to the complainant, then it would be relevant for the trial Court to examine the allegation that there is a debt or liability as to whether the cheque was drawn for discharge of legally enforceable debt or liability on the date of issue of the cheque.
27. To add further, as indicated earlier, a rule has been statutorily been incorporated in Section 139 of the Act which says "It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability".
28. Although Section 139 of the Act creates a statutory presumption that a cheque was given in discharge of a debt or other liability which is legally enforceable, it shall be open to the drawer/ accused to rebut the presumption by proof of facts to the contrary. But, in the instant case, as discussed earlier, it is not even alleged by the petitioner that there was no existing liability when the cheque was issued. On the other hand, it is averred in the complaint that the cheque in question was issued by the petitioner for discharge of the amount due from the accused to the complainant.
29. In these circumstances, the drawer cannot escape from the criminal liability merely by filing an insolvency petition by putting forward the case that he is not bound to discharge the liability mentioned in the complaint filed before the criminal Court, as there is no existing liability or he cannot face the criminal proceeding as he is already sought to be declared as an insolvent, especially when there is a Section permitting the Court to presume that there is an existing liability and the issuance of cheque by the accused was made towards the discharge of the said liability, which is legally enforceable.
30. In these circumstances, I am of the view that mere presentation of the insolvency petition or pendency of the insolvency petition, while the complaint was filed, would not disentitle the complainant to seek for the speedy remedy by way of penal action before the criminal Court over the offence stated to have been already committed by the accused.
31. In yet another case decided by me in CRL. O.P. Nos. 704 and 796 of 1999 dated 18-2-99Bharath N. Mehtha v. Mansi Finance (Chennai) Ltd. (1999 (2) Mad LW (Cri) 483), I had an occasion to consider the question and held that even the declaration by the Insolvency Court that the accused are insolvents would not disentitle the complainant to seek for remedy by way of penal action before the criminal Court for the offence under Section 138 of the Negotiable Instruments Act said to have been committed earlier by the accused.
32. In these circumstances, I do not find merit in this petition and, therefore, the petition is dismissed. Consequently, Crl. M.P. No. 47 of 1999 is also dismissed.
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